During his confirmation in the Senate Hearing On Thursday, Scott Besent, President Donald Trump’s pick for Treasury secretary, called the national debt a “disaster” and pointed to the country’s budget deficit, now more than 6% of gross domestic product, as something rarely seen outside of a time of war or economic crisis. Grand. .
Scott warned senators that the Treasury’s borrowing power, once used to bail out the country during events such as the Civil War, World War II, and the COVID-19 pandemic, was now in jeopardy. “What we have currently will make it difficult to do the same thing again,” Scott said.
His concerns come as outgoing Treasury Secretary Janet Yellen shared the same thing. Earlier this month, she said at an event in New York that the country’s fiscal trajectory was “simply unsustainable” and urged the incoming administration to treat it as a top priority.
But the similarity between their warnings stops there, as Scott has already laid out a completely different roadmap for tackling the problem.
Tax cuts are at the heart of the debate
Scott told senators that extending the 2017 Republican tax cuts, which are set to expire at the end of the year, is his top economic priority.
According to him, failure to extend the cuts could deal a strong blow to the economy, which could lead to financial instability and even a “sudden stop” in economic activity.
Janet on the other hand to caution A full extension of the 2017 tax cuts could weaken the country in the long term. Such policies could erode the resilience of the Treasury market, hurt the value of the dollar, and even start a full-blown debt crisis, she said.
Tax cuts, which lower interest rates for individuals and businesses, have become a hot-button issue. Democratic senators questioned Scott about why wealthy Americans, including billionaires, continue to enjoy lower tax rates.
Scott responded with familiar Republican arguments: Lower taxes stimulate economic activity, and the wealthy already contribute a disproportionate share of federal revenue. “The United States has no revenue problem,” he declared. “It’s a spending problem.”
He pointed to discretionary spending, which has risen 40% over the past four years, as the real culprit. As a solution, President Trump and his new friend Elon Musk created the Department of Government Efficiency (DOGE). As Cryptopolitan reported, Scott told senators that DOGE is “absolutely essential.”
Treasury market and economic signals
Beyond taxes and deficits, financial markets send their own signals. On Thursday, Treasury yields fell. The 10-year bond yield fell by 13 basis points, and the two-year bond yield fell by 10 basis points. Just days ago, the benchmark 10-year yield reached a 14-month high.
These fluctuations came in the wake of the release of the Consumer Price Index for December. The data showed that core inflation, which excludes food and energy prices, slowed to 3.2% year-on-year, slightly below economists’ expectations of 3.3%.
Core inflation rose by just 0.2% month-on-month, again below expectations. Headline inflation, including all goods, rose 0.4% monthly and 2.9% annually. In an interview with CNBC, Federal Reserve Governor Christopher Waller hinted that interest rate cuts may be on the horizon if inflation continues to slow. “If the data continues to look like this, we may see interest rate cuts sooner than the market expects,” he said.
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